Markets still unsafe, investors better hold

The markets had suffered a huge blow of 650 points on Tuesday, a day before the new governor took up the charge. Tuesday's huge fall was due mainly to a fresh slide in the rupee value besides the news of two missiles being shelled on Syria, thus posing a threat of a war and the resultant surge in the world's crude oil prices.

Rajan immediately got down to business and spelled out plans to reform the country's banking industry and reshape its financial infrastructure. As 23rd governor of apex bank, Rajan unveiled short-term time-table on what he wants to do to ensure more dollar flows into the system. Accordingly, the market breadth which had been remaining consistently negative turned significantly positive, therefore.

Sensex that closed the previous week at 18620, opened the week under review at 18692 and initially rose to a high of 19007 on Tuesday before the markets received a severe blow of admeasuring an intraday loss of over 800 points that sent the Sensex as low as 18166 and close at 18235 with the day's loss of a whopping 651 points. But with the new governor assuming charge, the markets have turned significantly positive and ultimately ended with a net weekly gain of 650 points. The new guard at the central bank also eased rules for foreign parents to raise stake in the listed firms. This was viewed upon with a highly positive by market-men as they assumed many more such positive announcements would be made including reduction in the interest rates when the central bank reviews its monetary policy at the end of the instant.

Although the change at RBI brought some positive perception improving financial markets, we cannot say that the economic scene is totally alright. India's economic crisis is still simmering may not be liable to be solved so easily. The banking reforms that the governor has hinted at are not going to bring foreign investors back or prevent the rupee from falling further. The sticky inflation is unlikely to allow him to reduce interest rates as is being expected, at least in the next review of monetary policy as the recent hikes in the petro-products is going to escalate the inflation rate. On the other hand, the industrial and economic growth as revealed by the released numbers, is decelerating.

The automobile sales are down. Factory output is suffering. The budgetary and current account deficits are rising. With the government being successful in getting the food security bill passed, the subsidy burden is sure going to increase which would compel the new government that gets elected in April-May, 2014, to increase tax burden. However, with all these negative issues lurking the stock markets cannot be expected to stage long lasting and run away boom in the near future. However positive steps may change the scene impacting in minimize the negative factors.

But for now, the markets are unlikely to break below the bottoms that have been established on Tuesday and the rupee unlikely to fall below 69 a dollar in normal circumstances and therefore, the day-traders may get stray opportunities to make meager profits trading in volatile stocks whereas investors will have to wait for a longer periods to benefit from the new purchases that they might enter into now. So, those having no patience must not buy stocks for now.